Senator Whitehouse, one of the sponsors of the Offshore WIND Act, represents Rhode Island. Rhode Island is home to the Block Island Wind Farm, the nation’s first and only offshore wind farm. However, Maryland may soon be following. On the very same day that the Offshore WIND Act was introduced, the Maryland Public Service Commission authorized two offshore wind projects with an aggregate wind capacity of 368 MW and awarded offshore wind renewable energy credits to both U.S. Wind Inc. and Skipjack Offshore Energy LLC. Nevertheless, the offshore wind industry faces some headwinds.

Under current law, a wind project, including an offshore wind farm, would be eligible for the production tax credit (PTC) under Section 45 of the Code if construction of the wind project begins before January 1, 2020. However, to be eligible for 100% of the PTC (which for 2017 is at a credit rate of 2.4 cents per KwH), construction of the project must have begun before January 1, 2017. Thereafter, the credit is reduced by 20% for facilities that begin construction during 2017, 40% for facilities that begin construction during 2018 and 60% for facilities that begin construction during 2019.

Alternatively, Section 48 of the Code allows a qualifying wind project, including an offshore wind farm, to elect the ITC in lieu of the PTC. Under current law, the ITC would be available for a qualifying wind project that begins construction prior to January 1, 2020. Like the PTC, the ITC is subject to a phase out. To be eligible for the full amount of the ITC (which is 30% of the eligible cost basis of the wind project), construction of the project must have begun before January 1, 2017. Thereafter, the ITC will generally be reduced by 20% for facilities that begin construction during 2017, 40% for facilities that begin construction during 2018 and 60% for facilities that begin construction during 2019. It is expected that offshore wind farms usually would elect to claim the ITC in lieu of the PTC due to their high capital costs.

Although the phase out of these incentives is an industry-wide challenge, it is particularly problematic for offshore wind farms because of the longer planning and permitting times that these projects require. As a result, the Department of Energy has found that no additional offshore wind projects are projected to be able to qualify for the PTC or ITC before they expire.[1] In addition, these incentives are generally limited to offshore wind farms that are located in the territorial waters of the United States over which the United States has exclusive rights with respect to the exploration and exploitation of natural resources (commonly referred to as the outer continental shelf).

To incentivize offshore wind production, the Offshore WIND Act would extend the full 30% ITC to “qualified offshore property” the construction of which begins before January 1, 2026. Qualified offshore property would include any facility (other than certain small wind energy facilities with nameplate capacity of not more than 100 kilowatts) using wind to produce electricity that is located in the inland navigable waters of the United States (including the Great Lakes), the coastal waters of the United States (including the territorial seas of the United States), the exclusive economic zone of the United States or the outer Continental Shelf of the United States. Thus, the Offshore WIND Act would both extend the start-of-construction deadline and change the requirement regarding the location of an offshore wind farm.

We are hopeful that the Offshore WIND Act and the Maryland Public Service Commission’s approval of two major offshore wind projects will be a tailwind for the offshore wind industry.

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